Financial topics

[John]

Well, Higgie, I'll repeat a story that my mother never tired of
telling.

Her father (my grandfather) ran a candy story that did quite well in
the 1920s, but was losing money in the 1930s. As the situation got
worse, he was unable to get any sleep. Finally the bank foreclosed,
and, according to my mother, "that night, he slept like a baby."

I hope you'll get a good night's sleep tonight.

John

[Higgenbotham]

Well, Higgie, I'll repeat a story that my mother never tired of
telling.

Her father (my grandfather) ran a candy story that did quite well in
the 1920s, but was losing money in the 1930s. As the situation got
worse, he was unable to get any sleep. Finally the bank foreclosed,
and, according to my mother, "that night, he slept like a baby."

I hope you'll get a good night's sleep tonight.

John

That sounds right, John. Remember that story about my grandfather? When he was old and senile, one day he sat bolt upright in his chair and declared, "I don't have any money!" He was reliving the Depression. We assured him that he did have some money, much to his relief.

I recently read somewhere that a large percentage of Americans are having trouble sleeping and somewhere else that a majority of Americans have only a few weeks worth of savings or none at all. As far as getting sleep (in my case), it doesn't matter whether I am making or losing money, when trading, I will wake up in the night no matter what. After I quit trading last Fall, it took about 6 months, but I started sleeping continuously through the night and it was glorious. I'm looking forward to resuming that, but it may take awhile.

If someone has a business, it seems like all they can do is continue what they are doing and hope things get better. At least people have the option to get their money out of the markets before they lose what they have.

By the way, this ramp up in precious metals prices and the decline of the dollar does concern me. Maybe it's a sign that this bubble is coming to an end, but since my scenario didn't pan out there's no reason to hang on and hope things will change for reasons that are different from those originally stated.

PS I can't figure out what's going on here. Stocks are going parabolic, the dollar is at the low for the year, gold and silver are racing higher, yet the 3 month t-bill rate is 0.09%, down 0.03% for the day. The t-bill rate indicates deflation is actually increasing its grip, but that's not consistent with stock and silver prices.

[mannfm11]

I think you guys are missing the point by figuring the gain from the bottom. With the type of decline we saw, you need 150% to get even, so 50% is only 1/3 back to the top. The form of this rally is pretty close to mirroring the Dow of 1929-1930 and 10,000 isn't even 1/2 way back. We still need over 500 points in the SPX to get back to the top.

The real point here is that only a very few of us that have ever studied markets believe they can go down and stay down. Look at the current mania in gold. Gold was over $800 in 1980, yet it fell to $250 with prices more than doubling. Again, they don't seem to believe it can go down, yet it has already proven in the lifetime of everyone but a few that are trading it that it can go down to less than 1/3 and stay there for long enough that it takes 2 or 3 years of bull movement for anyone to buy in. Stocks are the same way.

The volume in this rally has been really light, meaning that not much stock was bought down there and what was bought down there was acquired by outfits like Goldman with 0% fed money and is being sold out. Dividends are below the all time pre-1990 lows, not reflective of a bottom, but a level only a financial idiot or someone convinced stocks go up forever at foolish paces.

The amazing thing is that the unemployment claims last week were 550,000 and it appears the number was cooked. Despite this level, there is some kind of nonsense we have a recovery already going. Well, about 2.5 million people that were eligible for unemployment benefits lost their jobs and I doubt 1/2 that number found a job. Retail sales are said to be up while credit was paid down at an amazing pace. There is massive lying going on and little regard for the truth, especially in numbers released by the Fed. It is no wonder the Fed is stonewalling an audit.

Besides dividends, the PE on the Dow is over 100. It doesn't seem to register that 3 Dow stocks were carried out on a stretcher and only Chinese speculation kept Alcoa afloat and only a Fed backstop kept BAC, AXP, GE and probably JPM in business. There is still a trade going on for AIG, FRE and FNM, something to do with squeezing the shorts out of stocks that are gooing to zero.

I did a little trading in the winter. I bought into the idea that the rally to the curent level was going to happen in January and maybe February and ended up on the wrong side. What I did see then though was the Dow trading over 9000. Remember the story was we had a bottom. Maybe we were going to retest the bottom, but we had one. Then again the story was the bottom was already in and I would venture much stock was bought at that juncture. Point being we realy haven't done anything in the market that a bear wouldn't technically expect in the first place.

In ending this forray of opinion, you might note the greatest rally of all, China. If you bought China at the top, you are only down about 50%.

[Higgenbotham]

I think you guys are missing the point by figuring the gain from the bottom. With the type of decline we saw, you need 150% to get even, so 50% is only 1/3 back to the top. The form of this rally is pretty close to mirroring the Dow of 1929-1930 and 10,000 isn't even 1/2 way back. We still need over 500 points in the SPX to get back to the top.

mann, I actually did consider your idea about the 50% retrace or going 1/2 way back as you stated.

Just as background, the market topped in September 1929, then crashed down into November (2 months later), with the loss being about 50%. As you implied, the retrace out of the low was 50% to the April 1930 high or 1/2 way back.

Using the S&P, this time we made a high in 2007 and the subprime problems, etc., drifted it lower into an August 2008 secondary top, where the S&P was at 1310, off of its all time high the year previous. Then from August 2008, it crashed down into a November low and then continued lower until March, reaching a bottom of 667. To get the 50% retrace, I used those numbers and came up with about 990. Obviously, that was the wrong way to look at it, but that was my thinking. I had figured that to retrace the entire 17 month drop would probably take at least 8 or 9 months and would probably come in 2 pieces with a 2 or 3 month correction in between (similar to 1975 and 1976).

I had also looked at the retrace in Japan after the intial leg of the crash that lasted 9 months. I believe it projected the 990 area too, maybe a little lower.

Needless to say, I got outsmarted, but that's part of the explanation of how it happened! I guess it was Buffett who said that if history helps you make money in the markets, librarians would be the richest people in the country. Something like that.

[wvbill]

I think you guys are missing the point by figuring the gain from the bottom. With the type of decline we saw, you need 150% to get even, so 50% is only 1/3 back to the top. The form of this rally is pretty close to mirroring the Dow of 1929-1930 and 10,000 isn't even 1/2 way back. We still need over 500 points in the SPX to get back to the top.

mann, I actually did consider your idea about the 50% retrace or going 1/2 way back as you stated.

A 50% retrace would be about DOW 10,300 which is just where the gap down was in 9/08 -- maybe the theory that says the gap must get filled is going to play out.

One problem is that reason is pretty much out the window, since the Fed, Gov. and Wall Street have clearly indicated they are willing to do anything to save the big banks -- even if that means ruining the country and its people.

It makes for a tough game. The future does not look good.

Bill

[Higgenbotham]

One problem is that reason is pretty much out the window, since the Fed, Gov. and Wall Street have clearly indicated they are willing to do anything to save the big banks -- even if that means ruining the country and its people.

It makes for a tough game. The future does not look good.

Bill

Another incorrect assumption I had made was that the public would be mobilizing more aggressively at this point to stop this nonsense and that it would scare Wall Street enough to cause a selloff. The long hot summer that had been discussed here back in July.

The future looks worse by the day as the present becomes more distorted with respect to reality. With the comparison to the Soviet Union I made several months ago, "Business as usual will resume." The current situation reminds me more and more of this quote by Dmitri Orlov:

http://generationaldynamics.com/forum/v ... =620#p1809

[tadler]

Two of the wisest quotes I've read recently...

"Never mistake a clear view for a short distance."

Unfortunately, I've been guilty of this. We all (or at least most of us) can see clearly that a crash is coming, but that doesn't mean that it will come in 2009 or even 2010.

On the other hand consider this quote...

"When cold reality fails to conform to our inflated expectations, our disappointment leads us to conclude that the revolution will never arrive at all - right before it does."

As soon as we start saying, "I guess the crash isn't going to happen. I must have been wrong." That's exactly when the crash will come.

[MarshAviator]

I have been wondering if this present situation is a form of the boiling frog syndrome.
In spite of a steady march of negative indicators like employment, credit contraction, poor consumer activity, which are all bad, because nothing utterly catastrophic has happened the frog remains in the hot water, an attitude like Pollyanna.
Then at some point some (chaos type butterfly effect) seemingly insignificant event triggers a look around, and then the market collectively discovers, oh my word we are in boiling water and the bails.

What is curious is this behavior is likely a part of our basic left brain, right brain dichotomy.
The left brain is blind to non linear phenomenon and the right brain is blind to incremental changes.

This is being exploited by whom ever is manipulating the market. By providing small incremental and nearly meaningless improvement, using circular, low volume Enron style market trades late in the day which blinds the left brain, and lots of propaganda from the MSM blinding the right brain.

This is like musical chairs in which there are markedly fewer chairs than players, after a quick look around everyone wants the music to continue, because it is obvious that most will be left out in the cold.

At the risk of mixing nearly similar metaphors most of us on the forum are waiting for a pot to boil, with fear and trepidation (I am!).
It may not be possible to guess what spooks the masses. There are so many candidates; H1N1, unstable nation state actors with newly minted nukes, Peak Oil or even peak natural resources all inclusive, poor demographics, even weather, let alone yet another major failed house.
As GD theory says it must happen, we are due.

What puzzles me the most is even more conventional news feeds have a steady flow of concerns and cautions, clearly places like Zero Hedge and others have made a case for great concern.
Does anybody actually believe the MSM any more?

Or some investors so sophisticated that they know it's coming and are trying to time the market?

Sad thing for many of us boomer generation is large amount of our wealth can't be saved; 401K's and houses.
There are going to be lot's of really unhappy voters soon and this could be the motivation for the fraud from
(quasi) government actors.

History doesn't repeat, it rhymes.

[Higgenbotham]

Matt Stiles drew an interesting analogy over on his blog. Paraphrasing as best I can recall, investors are not dancing around the limited number of chairs this time, they are burning the chairs! Check out his comments; they are hilarious.

I'm seeing another dichotomy. Mentioned yesterday was the falling short term t-bill rate contrasted with the race higher in stocks and precious metals. I don't know for sure what's causing this, but it may be that there is one camp where the inflationary mindset is strongly entrenched and one camp where the deflationary mindset is strongly entrenched. The difference may be in the time frames that are being considered, with the inflationists being more short term in orientation. Judging from this dichotomy, the panic switch from inflation to deflation assets and herd/market behavior may be almost instantaneous and very intense when it finally occurs. Of course, it could go the other way where dollar holders decide they want out, but it seems that deflation is the probable longer time frame outcome.

The race higher in stocks and precious metals is, in my opinion, the last gasp of "business as usual will resume" in the markets and by association generally. I don't know how long that can continue, but it has continued longer than most guideposts set up by experienced market technicians and professional traders. In other words, traditional lines delineating bull and bear markets have been crossed to the bull side but at the same time it is obvious that this is not a bull market. Now that the lines have been crossed, where do professional traders draw their lines? They don't; instead thery exit out of fear and the last of the shorts capitulate. This morning I heard that some larger retail clients capitulated yesterday. That's a sign that the end of this run in the stock market is near. Yet, at the same time, few want to take a short position (as in few traders - of course, in futures, the number of longs and shorts are balanced on a contract basis but the number of entities on each side can become grossly imbalanced at extremes in the market). From what I hear, most still contemplating going short are "waiting for confirmation"; in other words, they are waiting for their lines to be crossed again. For example, 1050 on the S&P may be a line and they will sell under there, but not before it gets there. Therefore the likely outcome is that the ever larger herd attempts to head through the narrowing door at nearly the same time, consistent with the inflation/deflation dichotomy observed.

[wvbill]

It seems to me as if whoever is feeding this market is afraid to allow even a healthy correction for fear it will turn into a serious downturn.

I think there is a lot of fear out there, but no one is willing to be the first to exit. The big funds are, at this point, just trying to get to the end of the quarter showing big gains. The Gov. knows that a stock market decline would be disastrous, since many view it as the sign of a recovering economy. The stakes are high for all the players.

I see no way we can get to the end of the year without clear signs the economy is dead. But, then again, the Gov. has so far done a good job of keeping the fake alive.

Bill